Call for evidence as pension schemes bill enters committee stage
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The Public Bill Committee is seeking written evidence on the pension schemes bill, which had its second reading in the House of Commons on Monday. During the debate, a Conservative former minister expressed grave concerns about the government's pensions policy, calling it “chillingly dirigiste”.
The committee looking at the bill will meet for the first time on 2 September and is expected to report on 23 October. It encourages anyone considering submitting written evidence to do so as soon as possible, as it can conclude earlier than the expected deadline.
The bill currently contains 12 policies. Controversially, it gives the secretary of state for work and pensions the power to mandate certain investments if schemes are not doing enough of them in the government’s view, as well as powers to mandate Local Government Pension Scheme funds to choose a different asset pool.
This aspect of mandation power sits uncomfortably with trustees, including Dame Meg Hillier, a trustee of the Parliamentary Contributory Pension Fund. During the bill’s second reading, the MP for Hackney South and Shoreditch raised concerns about mandation, but pensions minister Torsten Bell batted them away saying the bill “explicitly recognises the fiduciary duty of trustees towards their members” because clause 38 offers a mechanism “to allow providers to opt out if complying risks material detriment to savers”.
However, Conservative MP Kit Malthouse, a former government minister, queried this opt-out. He noted that it is not simply up to the trustees but requires approval from the Pensions Regulator after the trustees have submitted evidence.
“The idea that trustees are somehow free to make a decision in the interests of the fund is not actually correct, is it?” he said.
Work and pensions minister Andrew Western replied that Malthouse “is correct in his interpretation” but argued it was “perfectly reasonable” to ask trustees to explain why what is proposed would be to the detriment of their scheme members.
While many MPs appeared supportive of the bill, Malthouse had further heavy criticism for the bill – and the government’s pensions policy in general.
He said he was suspicious of the general consensus around the measures proposed, “particularly when the City of London is conspiring with a Labour government to muck about with our pensions. We have seen that before.” Malthouse was referring to Gordon Brown’s pension reforms in 1997.
The MP for North West Hampshire accused the government of trying to centralise control. A member of the Local Government Pension Scheme, he said that through the hybrid legislation process, LGPS members or their representatives should have the right to petition the Bill Committee and explain why they feel they are affected by investment pooling, the changes to fiduciary delegation and asset consolidation.
“If I am being generous, the ambition behind this bill is to unlock capital that can be invested for the purposes of growth, but the methods it proposes are chillingly dirigiste and make the dangerous assumption that Whitehall knows best and that central direction by the government can outperform the dispersed judgment of hundreds of experienced trustees managing diverse funds in varied contexts,” he said. “Essentially, with this bill the minister is turning the pension fund industry into an element of government procurement by the back door.”
The committee looking at the bill will meet for the first time on 2 September and is expected to report on 23 October. It encourages anyone considering submitting written evidence to do so as soon as possible, as it can conclude earlier than the expected deadline.
The bill currently contains 12 policies. Controversially, it gives the secretary of state for work and pensions the power to mandate certain investments if schemes are not doing enough of them in the government’s view, as well as powers to mandate Local Government Pension Scheme funds to choose a different asset pool.
This aspect of mandation power sits uncomfortably with trustees, including Dame Meg Hillier, a trustee of the Parliamentary Contributory Pension Fund. During the bill’s second reading, the MP for Hackney South and Shoreditch raised concerns about mandation, but pensions minister Torsten Bell batted them away saying the bill “explicitly recognises the fiduciary duty of trustees towards their members” because clause 38 offers a mechanism “to allow providers to opt out if complying risks material detriment to savers”.
However, Conservative MP Kit Malthouse, a former government minister, queried this opt-out. He noted that it is not simply up to the trustees but requires approval from the Pensions Regulator after the trustees have submitted evidence.
“The idea that trustees are somehow free to make a decision in the interests of the fund is not actually correct, is it?” he said.
Work and pensions minister Andrew Western replied that Malthouse “is correct in his interpretation” but argued it was “perfectly reasonable” to ask trustees to explain why what is proposed would be to the detriment of their scheme members.
While many MPs appeared supportive of the bill, Malthouse had further heavy criticism for the bill – and the government’s pensions policy in general.
He said he was suspicious of the general consensus around the measures proposed, “particularly when the City of London is conspiring with a Labour government to muck about with our pensions. We have seen that before.” Malthouse was referring to Gordon Brown’s pension reforms in 1997.
The MP for North West Hampshire accused the government of trying to centralise control. A member of the Local Government Pension Scheme, he said that through the hybrid legislation process, LGPS members or their representatives should have the right to petition the Bill Committee and explain why they feel they are affected by investment pooling, the changes to fiduciary delegation and asset consolidation.
“If I am being generous, the ambition behind this bill is to unlock capital that can be invested for the purposes of growth, but the methods it proposes are chillingly dirigiste and make the dangerous assumption that Whitehall knows best and that central direction by the government can outperform the dispersed judgment of hundreds of experienced trustees managing diverse funds in varied contexts,” he said. “Essentially, with this bill the minister is turning the pension fund industry into an element of government procurement by the back door.”
Malthouse argued it was not true megafunds perform better, and that they can “lose agility, lack accountability and become distant from pensioners and members of the fund”.
Very large funds “specifically underperform when they invest in exactly the kind of illiquid assets that the government are hoping to push them into: infrastructure and private equity”, he said, urging the government to look at evidence from the United States among others.
Malthouse also warned against the danger of politicisation of pensions – something previous governments have not been immune to – pointing to Canada and France, and wondered whether pension scheme members would now be exposed to HS2 if schemes had been pushed into infrastructure projects at the time.
Western noted that Bell has agreed to speak with Malthouse next week, adding: “On the question of megafunds, he is right that not all large schemes provide a better return, but the evidence shows that while that is not always the case, they do see better returns on average.”
As introduced on 5 June, the bill would:
Very large funds “specifically underperform when they invest in exactly the kind of illiquid assets that the government are hoping to push them into: infrastructure and private equity”, he said, urging the government to look at evidence from the United States among others.
Malthouse also warned against the danger of politicisation of pensions – something previous governments have not been immune to – pointing to Canada and France, and wondered whether pension scheme members would now be exposed to HS2 if schemes had been pushed into infrastructure projects at the time.
Western noted that Bell has agreed to speak with Malthouse next week, adding: “On the question of megafunds, he is right that not all large schemes provide a better return, but the evidence shows that while that is not always the case, they do see better returns on average.”
As introduced on 5 June, the bill would:
- consolidate Local Government Pension Scheme funds into LGPS megafunds;
- allowing trustees of well-funded defined benefit schemes to share surplus funds with sponsoring employers;
- establish a permanent legislative regime for DB superfunds to replace the current interim regime;
- require defined contribution trustees to report on the scheme’s value for money;
- consolidate individuals’ small DC pension pots through multiple default consolidators;
- set a minimum size for multi-employer DC default funds to create DC megafunds;
- allow contract-based pension providers to override a member’s contract, in order to change the contract or transfer them to a new arrangement;
- place a duty on DC trustees to offer default retirement products to members;
- re-establish the legal standing of the Pensions Ombudsman to enforce determinations in pension overpayment cases without needing a county court order;
- extend the definition of terminal illness used for the Pension Protection Fund and Financial Assistance Scheme from a life expectancy of six months or less to a life expectancy of 12 months or less;
- remove restrictions that prevent the PPF from reducing its annual levy; and
- enable the government-backed pensions dashboard service, provided by the Money and Pensions Service, to display PPF and FAS information.
